Doro: Rising transportation costs pressure GM - ABG

GM down due to high transportation costs…
...so we lower 2022e GP by 10%
Trading at EV/EBIT 9x-5x on ’22-‘23e

Gross margin pressured in the quarter
The first quarter is the weakest quarter for Doro, and external factors held back the performance. However, order intake was flat, and sales grew 3.0% in the quarter, but mainly from FX, as organic sales growth was -1.9% in the quarter. What stood out the most, and what we believe is the reason the share fell 17% on the report, was the poor profitability. The gross margin (GM) was 32%, 4pp lower than our estimate of 36%. Rising transportation and component costs, which Doro has managed well before, were the main explanation for the drop. We also believe that FX headwinds help to explain the low GM, as the USD, Doro’s main purchasing currency, was up 11% vs. the SEK in Q1. All the above resulted in an adj. EBIT of SEK 4.2m for an EBIT margin of 2.1%, down 4pp y-o-y.

Estimate revisions due to negative external factors
With external factors creating headwinds for Doro, we lower sales estimates by 0.5% for the next two quarters. Moreover, the company has now secured transportation for components for the year, but at a large cost. Therefore, we have lowered our GM to 32.0% for Q2e: we estimate 32.5% for Q3e and 33% for Q4e. However, there is still a risk of component shortages and more price rises. We keep opex fairly intact, resulting in EBIT margins of 3.0%, 7.4% and 9.1% for Q2, Q3 and Q4 2022.

New fair value range of SEK 20-31 per share
With our estimate revisions, we lower our fair value range to SEK 20-31 from 26-40 per share, which corresponds to an EV/EBIT of 8.8x-13.3x for 2022e. The share is currently trading at EV/EBIT 9.0x on 2022e, but 4.9x on 2023e.
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